Corbett v Halifax Building Society

A completed mortgagee’s sale is not set aside merely because the property was sold at an undervalue. The mortgagor must show impropriety or bad faith in the exercise of the power of sale, and a purchaser without notice of that impropriety is ordinarily protected. A purchaser’s dishonesty towards the mortgagee is immaterial where it is unrelated to the mortgagor’s interests and to any impropriety in the sale. Any discretion to set aside an improper sale must be exercised equitably, having regard to delay, prejudice, occupation as a family home, works undertaken and changes in value. Where rescission would be disproportionate, the mortgagor’s remedy is damages against the mortgagee.

The Corbetts mortgaged Yew Tree Farm to Halifax. After default, Halifax took possession and sold the property for £140,000 to Alan Marples, who immediately resold it to Alan Deakin, a Halifax employee. Deakin had concealed his identity because Halifax’s internal rules prohibited employees from buying repossessed property.

The Corbetts alleged fraud and sale at an undervalue. The trial judge found an undervalue, but no fraud by Halifax or involvement by Deakin in exercising the power of sale. He nevertheless set the sale aside and made consequential rectification, possession and sale orders. The central issue on appeal was whether Deakin’s deception, despite his lack of knowledge of the undervalue, entitled the Corbetts to rescission rather than damages.

1. Appeal allowed. Pumfrey J gave the principal judgment, with Scott Baker LJ and Schiemann LJ agreeing. The order setting aside the sale was reversed. The Corbetts were left to their remedy in damages, with judgment for £20,000 and interest against Halifax; costs were to be agreed.
2. A mortgagee is not a trustee of its power of sale. The power exists to realise the security. The mortgagee must use it for proper purposes, act in good faith and, when exercising the power of sale, take reasonable care to obtain the best price reasonably obtainable. An innocent undervalue, without more, does not establish the impropriety required to impeach a completed sale.
3. Under section 104 of the Law of Property Act 1925, a completed statutory sale is vulnerable only where the purchaser has knowledge of, or participates in, an impropriety connected with the exercise of the power. The purchaser’s protection is not defeated by dishonesty towards the mortgagee which has no connection with the impropriety alleged by the mortgagor. Deakin knew neither of the undervalue nor of any relevant impropriety affecting the Corbetts.
4. The reasoning in Waring v London & Manchester Assurance Co [1935] Ch 310 and Property & Bloodstock Limited v Emerton [1968] 1 Ch 94 could not be confined to the period between contract and completion. Their rationale was that the sale must be tainted by impropriety, not merely an innocent undervalue. The statutory and equitable duties concerning price did not alter that requirement.
5. Even if the court had a discretion to set aside the completed sale, the trial judge exercised it wrongly. Relevant considerations included substantial delay, prejudice in a rising market, the Deakins’ occupation as their family home, minor children, works carried out and the disruption caused by an order for sale. The benefit to the Corbetts was disproportionate to the undervalue and the Deakins’ loss.
6. The separate argument concerning rectification of the Register raised difficult questions which the court left undecided.

• Court of Appeal (Civil Division): The appeal from the judgment of HHJ Weeks QC, sitting in the Chancery Division, delivered on 17 October 2001, was allowed. The order setting aside the mortgagee’s sale was displaced and the Corbetts were left to damages against Halifax.
• High Court, Chancery Division: The trial judge found an undervalue and ordered the sale to be set aside, with rectification of the Register and consequential possession and sale orders.